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How to Get Approved for a Personal Loan

April 21st, 2009

PayCheckToday.com - Get up to $1000 Fast with No FaxingIn today’s difficult economic climate, many borrowers feel a certain foreboding aura when applying for credit of any kind. A personal loan — that is, a loan without some collateral securing the bank’s interest — can be considerably more difficult to obtain than car or home financing. With some preparation, however, you can greatly increase your chances of getting approved for this kind of loan.

Start by evaluating your current situation. Although it may seem like a non-issue, the first step in getting approved for a personal loan is to evaluate whether you are actually in a position to take on additional debt. If you currently have significant credit card debt, loan debt, or vehicle financing, banks may view your debt to income ratio (DTI ratio) as a detrimental factor. In addition, compounding an already high debt load may make it more difficult to repay your debts, creating an undesirable situation. If possible, pay off any credit cards or other consumer debts before applying for a personal loan.

Check your credit history. Your credit file, the information about your borrowing and repayment habits collected by major credit bureaus, usually plays a considerable role in getting approved for a personal loan. Although your file may be available for purchase from any number of websites or directly from the credit bureau itself, federal regulations afford you one free copy of your report every year. You can obtain this free report from one of the major credit reporting agencies such as Equifax or Experian.

If you find errors in your credit report, you can dispute these issues with the credit reporting bureau. Errors — such as incorrectly recorded payments or closed accounts appearing as open — may be seen by a bank as negative marks on your credit file, and could mean the difference between getting approved or being declined for your personal loan. A large amount of errors, especially if these errors include accounts that you do not remember opening, may be an indicator of a more serious identity theft problem that may be reported to the credit bureau fraud division and your local law enforcement agency.

With your debt load under control and a solid understanding of items in your credit file, you are ready to apply for a loan. You can apply for a personal loan any number of ways, though popular methods include online applications, applications over the telephone, or applying in person at a local financial institution. While online applications do offer the benefit of a nearly instant approval decision, they remove any human factors from the application process and rely solely on quantifiable data.

If you feel like your credit file may be potentially questionable, you may benefit from an in-person application where face-to-face communication with a loan officer may work in your favor. Keep in mind that a checking and/or savings account can help prove your financial responsibility and help get your loan approved. As an additional benefit, if these accounts are with the same bank, that bank may be more willing to work with you (their established customer) than an institution with which you do not have an existing relationship.

If, after all your preparation and hard work, your preferred bank or lending institution declines your application, you may still be able to get approval from another lender. Keep in mind, however, that each application generates an “inquiry” on your credit report and may lower your credit score by a few points (lending institutions term multiple applications “shopping for credit”) and further hurt your chances of getting approved. If three different financial institutions decline your application, you may need to take some time to address any credit issues and resolve outstanding debts before submitting any further applications.

About the Author

G. Keith Evans (username Aerosly) is one of the few Constant Content authors who actually offers good quality articles at reasonable prices. Although he has only written two articles through this venue so far, it is hoped that other authors will follow this example, which would be a boon to frustrated webmasters everywhere.

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